This story is from October 1, 2006

Power projects funding on roll

Manju Menon & Namrata Singh / TNN / Oct 1, 2006, 23:32 IST

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The power ministry is close to finding a solution for financing the seven ultra-mega power projects costing Rs 16,000-20,000 crore each.

MUMBAI: The power ministry is close to finding a solution for financing the seven ultra-mega power projects costing Rs 16,000-20,000 crore each.
The ministry is seriously examining the option of 'take out' financing to fund the projects of 4,000 megawatt each.
Under 'take out' financing, first phase of funding — construction phase of five years — will be financed by a consortium of local banks.
At the end of the first phase, the debt will be taken over by another group of financiers — both foreign and domestic — for rest of the period which is likely to be 15-20 years as power purchase agreement (PPA) for these projects will be for 25 years.

LIC is likely to lead the consortium for funding the second part of the 'take out' financing. This was discussed at a meeting held on August 25, by 18 member inter-institutional group along with power ministry officials.
Financing such huge projects having a 70:30 debt equity component would be an issue because banks and FIs are bound by RBI's exposure norms for each sector, project and even a company.
The power ministry has also constituted a committee consisting representatives of leading financial institutions, banks, Power Finance Corporation and Rural Electrification Corporation.

This committee, headed by State Bank of India chairman, was to complete its deliberation in three weeks and submit a report by the third week of September.
At the same meeting, Citigroup's MD Rajeev Ahuja, suggested that local banks would be better placed to assess the credit risk of the borrower than a foreign bank and can take up the initial risk till the construction period.
The power ministry wants to rope in India Infrastructure Finance Company as a government-owned company. IIFCL will borrow on government guarantees and take up to 20% exposure in projects.

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